ICR XCHANGE – TAKEAWAYS
Compass Restaurant Consulting & Research recently attended the ICR Xchange in Miami where over thirty restaurant brands held presentations and breakout sessions. Brand management discussed a range of topics with most focusing on previous quarterly performance or previously made presentations. However, there were several brands that made noteworthy comments about their brand and even a few discussed ObamaCare. Below are Compass’ takeaways.
- Beverage Platform Upgrade – During the breakout session someone questioned coffee upgrades. BKW said they were going to upgrade and focus on the entire Beverage Platform. This indicates Burger King’s interest in growing their beverage business. No one else in the breakout session seemed to have caught this.
- This is significant because recent studies point to a growing trend of “snacking” among consumers. In a recent study by NPD “snacking” accounts for 20% of all food dollars spent away from home and that category includes beverages. McCafe is a $2 billion business at McDonald’s. Sonic’s Happy Hour (2-4pm where most beverages are featured at ½ price) accounts for 28% of their business. So for BKW to enter this arena will provide many opportunities to capture sales that are low-hanging fruit and position themselves to be one of the few brands focused on capitalizing this growing dining trend.
- Veggie Bowl & Burrito – They will be rolling out a new Veggie Bowl & Burrito – Sofritas (Tofu) beginning in February. It appears they are trying to get a jump on Taco Bell’s Cantina Menu “Veggie” offerings.
- Catering Program – They will launch a catering program starting in Colorado. They are looking at catering as a growth opportunity for sales. Obviously CMG has heard of Panera Bread’s success with catering.
- Price Increases – CMG also mentioned the possibility of price increases in 2013. They were the only restaurant brand that mentioned price increases. This could price them further out of some consumers’ reach.
CMG seems to have put some focus on broadening their efforts to recapture/capture market share. Getting ahead of Taco Bell’s Cantina Menu rollout of a Veggie Bowl / Burrito will keep CMG from looking like they copied Taco Bell. Instead they now have taken the lead on this product. With the launch of the Catering Program they will attempt to mimic the success of Panera Bread with their catering business. Catering is currently averaging 20% of Panera Bread sales so the potential for catering to add business is a good move; fits well in CMG business model.
On the subject of price increases, this will hurt sales – especially at a time when consumers are very sensitive to price. Consumers have proven they will trade down quality for price, especially at Chipotle.
- Store Closings – RT mentioned closing under-performing stores; closing other brands in portfolio (except Lime Fresh Grill). Only mention of expansion was the Lime Fresh Grill brand. Could this be the end of Ruby Tuesday?
- Concerning the closing of the Marlin & Rays concept – this is puzzling. The concept is sound and fills a niche in Casual Dining that has little competition – seafood. Sales at one time were better than RT. It seemed like this could have been a growth vehicle for RT.
With RT focusing their growth on the shoulders of Lime Fresh, they are showing their confidence in that concept (and conversely with no mention of growth in RT – demonstrating a lack of confidence in that concept). Recent studies indicate that Mexican food is the fastest growing cuisine in the Fast Casual sector. So RT has positioned themselves well for growth after all.
- New Store Development – During Sonic’s presentation and breakout session, they mentioned “because franchisees made an additional $15,000 last year, they were now showing strong interest in expansion.” This is in contrast to franchisees recently interviewed by Compass. The majority of these franchisees currently view expansion as acquisition of existing units as opposed to new store development. (Franchisees are making minimal plans toward new store development; more to fulfill minimum Territorial Development Agreements than a desire to grow new units.)
- New Building Design – Also mentioned in the breakout session was the new building design that could save as much as 20%. Yet, when questioned, the Corporation’s commitment toward building this design was weak and they were depending on franchisees to develop the new design and tout its benefits.
These comments were a bit curious. Most franchisees we spoke with are currently focused on how to handle ObamaCare and what to do about the new taxes as a good many of them are Sub-Chapter S corporations or LLC’s where the business income flows to them personally thus putting them in the tax bracket above $250,000. That extra $15K income is going to pay bills not fund new unit development; at least in the short-term.
- Breakfast – Announced that breakfast would be put on the back burner and discontinued in units where breakfast was under-performing. This is a dramatic shift from where they stood on breakfast two years ago when they stated that “Breakfast drives QSR growth…” This seems like a pretty significant reversal.
- Three Tiered Re-imaging Program – They spoke of their Three-Tiered Re-imaging Program costs and varying results. BKW is achieving the same results (and in some instances even better) but, Burger King’s re-image program costs significantly less. There appears to be significant disparity between BKW and WEN re-image costs.
Once again Wendy’s demonstrates how out of touch they are with the customer. Their breakfast failure was due to Wendy’s desire to be like Panera Bread’s breakfast offering items like Panini, Artisan Egg Sandwich on a Ciabatta type roll all of which carries a higher price point; rather than offering the QSR breakfast customer the entrees they want which are at a lower price point. Breakfast failed because they simply priced themselves out of the market and management still doesn’t get it.
- Late Withdrawal from the ICR XChange – Many attendees questioned whether this was brought about by YUM’s recent statements on their ailing China market.
As far as comments about ObamaCare, two brands (in their breakout session) took the position that the Affordable Healthcare Act will not impact businesses as much as what small business owners are saying. They explained this position as the interpretation of the word “offer” verses “provide” in the Employer Mandate portion of the law. In simple terms, their understanding is that if an employer offers the health insurance but the employee refuses – then the employer is off the hook. If the employee opts to take the insurance, an employer can charge that employee up to 9 ½% of their income to help pay for their insurance. Management does not anticipate many employees opting to take the insurance because of this.
Several problems with this position:
- it’s built completely on the assumption they are right in their interpretation of the Employer Mandate (what if they are wrong!).
- The majority of the Healthcare Bill has not been completely defined, therefore, any conclusions drawn are very speculative.
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While small business owners have taken a more cautious and guarded position and interpretation concerning the Healthcare Bill, they believe they must provide insurance to all full-time employees. They are anticipating having to incur some expense concerning this bill and therefore attempting to make plans accordingly. If their wrong – no harm done.
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In speaking with the National Restaurant Association about this, the spokesperson indicated that both sides are partially correct according to current interpretation. However, they pointed out that the bill is about 2000 pages in length; yet, to date (January 20, 2013) there are over 13,000 pages of definitions and regulations and that barely scratches the surface. In one instance there are 18 pages that explain the definition of a full-time employee. In summary, there isn’t a complete definition of any portion of the Healthcare Bill; so uncertainty still dominates.